Greece to unveil new loan proposal in Grexit gamble


ATHENS: Greece is due to make a formal request for a loan extension from eurozone finance ministers on Thursday, saying it is “optimistic” about a compromise with EU and ECB to avoid a looming “Grexit.”

Athens was expected to send a letter to Jeroen Dijsselbloem, head of the Eurogroup, to request an extension of up to six months on its European loan agreement that would sidestep the restrictions of a full-blown bailout.

Greek Finance Minister Yanis Varoufakis insisted a deal was still possible even after a firm preemptive “nein” from EU paymaster Germany to its planned offer.

“We are on the right path, I am optimistic it will end well tomorrow or the next day,” Varoufakis told reporters on Wednesday.

“Our proposition will be written in such a way that it will cover both the demands of the Greek side and the head of the Eurogroup,” he said.

Europe and Greece are racing to reach a deal to avoid a Greek exit from the eurozone—dubbed a “Grexit”—after talks in Brussels ended in acrimony on Monday with both sides digging in their heels.

‘Walls made to fall’
With the European portion of the bailout expiring at the end of February, Greece’s creditors insist it needs extra financing to stave off the risk of a default and exit from the euro.

But after Greece said it was looking to request a loan extension from the eurozone without strings attached, warnings flooded in from the EU and US over the perils of losing time with proposals that were doomed to fail.

The European Central Bank decided Wednesday to extend and increase the amount of emergency liquidity available to Greek banks to 68.3 billion euros ($77.5 billion), according to a bank source.

The decision to raise the ceiling of that funding by only 3.3 billion euros, however, was seen by analysts as pressure from the ECB for Athens to clinch a deal and reverse a rise in deposit outflows which could spark a funding crisis.

Two weeks ago, the ECB effectively shut off Greek banks from a key channel of financing by saying it would no longer accept Greek sovereign bonds as collateral for loans in its normal refinancing operations.

“Warnings from ECB and US, Athens confident of Eurogroup deal,” the liberal Kathimerini daily said, while the satirical Pontiki newspaper’s headline read: “Walls are made to fall, Tsipras besieging fortress Berlin.”

As the clock ticked down to a Friday deadline set by Dijsselbloem, US Treasury Secretary Jacob Lew called Varoufakis to urge him to work on a deal based on the existing bailout agreement.

He told him “failure to reach an agreement would lead to immediate hardship in Greece, that the uncertainty is not good for Europe, and that time is of the essence,” the Treasury said Thursday.

‘Best way forward’
The European Commission’s vice president for the euro, Valdis Dombrovskis, said efforts were under way to forge a compromise by finding “common ground for an extension of the current program.”

He insisted that “the best way forward is to extend the existing program with its conditionality.”

Prime Minister Alexis Tsipras’s ruling party has refused time and again to do just that, insisting the conditions laid out in an original agreement made with the former conservative government were strangling the economy.

Earlier insistence it wanted a bridging loan rather than bailout extension has softened somewhat, however–the word bridge has now been dropped, while extension is back on the table.

Fitch ratings agency said Greece’s credit rating was at risk due to “continued brinkmanship in the negotiations,” and warned creditors will be reluctant to set a precedent for giving aid without “appropriate conditionality.”

A spokesman for German Finance Minister Wolfgang Schaeuble had earlier said any extension of international loans was “inextricably” linked to reforms agreed by Athens under its 240-billion-euro ($270-billion) bailout.

Schaeuble himself said he would “not speculate on discussions and negotiations we’ll have in the coming days.”

He has accused Athens of wanting something for nothing and has urged Tsipras to “tell the Greeks the truth: there is no fast way out.”

The euro rose Thursday on hopes for a deal but the chaos surrounding the debt talks has alarmed analysts, with economists at Commerzbank now predicting that a Greek exit from the euro was 50 percent likely.



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